The American Opportunity Tax Credit

You should know the rules if planning to claim the American Opportunity Tax Credit. It’s worth up to $2,500 per student for each of the first four years of college. The break is based on 100% of the first $2,000 spent on qualifying college expenses and 25% of the next $2,000. For 2019, it begins to phase out for joint-return filers with modified adjusted gross above $160,000…$80,000 for single filers. The student must be in school at least half-time. Eligible expenses include tuition, books and required fees. The cost of room and board doesn’t qualify for the credit.

IRS is amping up it’s efforts in policing the AOTC. Here is an example. It pulled the 2015 return of a couple who took the credit for their kid’s college costs. All would have been fine except for the fact that the couple also claimed the credit on their 2011-14 returns for the same child. That’s five years of taking the credit. It’s no surprise that the Tax Court nixed the break (Thomas, TC Summ. Op. 2019-24).

The Kiplinger Tax Letter
Vol.94, No. 19